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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Multi Commodity Exchange of India Limited (NSE:MCX) has been paying a dividend to shareholders. Today it yields 2.6%. Let’s dig deeper into whether Multi Commodity Exchange of India should have a place in your portfolio.
Check out our latest analysis for Multi Commodity Exchange of India
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
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Is it the top 25% annual dividend yield payer?
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Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
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Has dividend per share amount increased over the past?
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Does earnings amply cover its dividend payments?
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Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Multi Commodity Exchange of India pass our checks?
The current trailing twelve-month payout ratio for the stock is 72%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 84% which, assuming the share price stays the same, leads to a dividend yield of 4.0%. Furthermore, EPS should increase to ₹31.65. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality is that it is too early to consider Multi Commodity Exchange of India as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Multi Commodity Exchange of India produces a yield of 2.6%, which is high for Capital Markets stocks.
Next Steps:
Taking into account the dividend metrics, Multi Commodity Exchange of India ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three pertinent aspects you should look at: